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What happens to my Bounce Back Loan in liquidation?

What happens to my Bounce Back Loan in liquidation?
Phil Ross
Phil RossPhil@lucasross.co.uk

Posted: Tue 9th Feb 2021

With coronavirus continuing to affect businesses across the country, the Bounce Back Loan Scheme (BBLS) - introduced back in May 2020 - has given a lifeline to many businesses struggling through lockdown.

The Bounce Back Loan Scheme allowed eligible businesses to borrow between £2,000 and £50,000. Loans can be used for any business-related expenditure to protect staff, customers, and to survive the impact of COVID-19.

For some, however, the Bounce Back Loan was not enough. Some companies may go into liquidation because they will not be able to make their repayments when the 12-month holiday ends (though business now have 18 months before they need to start paying back).

Can I liquidate my company if I have a Bounce Back Loan?

The simple answer is yes, you can liquidate your company even if it has a Bounce Back Loan.

For many, trying to rescue or recover their business will be impossible. The insolvent position will be too great. If it is not possible to rescue your insolvent company then a creditors voluntary liquidation may be necessary.

If I close my company, what happens to my Bounce Back Loan?

The Bounce Back Loan in a limited company (or LLP) is an unsecured debt. It is the company that owes the money. Therefore placing your company into liquidation means the Bounce Back Loan debt dies with the company.

The lender claims back the money you owe them from the government.

Am I personally liable for an unpaid Bounce Back Loan?

When a company goes into liquidation or simply closes, any personal guarantees signed by directors will be called upon. The creditors who have the personal guarantees will demand payment of their debt and the debt will survive the liquidation.

However, there are no personal guarantees with a Bounce Back Loan. This is great news for a company director. They can put their company into liquidation without fear of automatic personal liability for the Bounce Back Loan.

But this doesn't mean directors can get away with actions that do not comply with their legal duties. Acts such as fraudulent trading, making preferential payments or abusing the BBLS can cause problems.

During the liquidation process, the directors' conduct must be investigated. Any improper acts they have performed may lead to them being personally liable.

Bounce Back Loan and liquidation summary

Company directors can seek to place their companies into liquidation without great concern about Bounce Back Loans they have taken out.

The existence of Bounce Back Loans do not stop you liquidating your company. Company directors will not be automatically held personally liable for the Bounce Back Loan. In fact, there will be no liability whatsoever if the liquidator finds the funds have been used properly.

Want to liquidate with a Bounce Back Loan?

We are starting to see enquiries rising from companies who have taken out bounce back loans but cannot pay them back. If your business is struggling, regardless of whether it has had a Bounce Back Loan and irrespective of Covid 19 and would like honest, ethical and no obligation advice, contact me via my Enterprise Nation profile.

This article was originally published by Lucas Johnson.

Phil Ross
Phil RossPhil@lucasross.co.uk
I'm here to help. I'm volunteering free advice calls of up to an hour as part of the Business Rescue and Recovery Advice for Business scheme, over the next 6 months. Please get in touch to see how I can help your business.

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